Natural Gas Short Selling High All Times

http://www.bloomberg.com/apps/news?pid=20601103&sid=aYKDCgVH0xaY
By Jeff Kearns

Sept. 11 (Bloomberg) -- Short sellers bet against the U.S. Natural Gas Fund in record numbers last month as prices for the fuel plunged to the lowest level since 2002 and the fund quit issuing new shares.

Short interest for the exchange-traded fund tracking gas futures surged 135 percent to 30.9 million shares in the two- week period ended Aug. 31, according to data compiled by the New York Stock Exchange. The fund, known by its UNG ticker symbol, slipped 5.3 percent to $10.59 in New York, extending its retreat to 54 percent this year.

UNG has been trading at a premium to its underlying natural gas assets since Aug. 12, when it announced that it couldn’t issue new shares because of limits on how many natural gas contracts it can buy. Today, shares cost 15 percent more than the value of the fund’s gas contracts.

“Due to the lofty premium it makes sense that investors would prefer using futures directly instead of the ETF,” said Scott Becker, an equity derivatives strategist at Jefferies Group Inc. in New York. “As the premium on the UNG expands it becomes increasingly less attractive as a vehicle for investing in natural gas.”

Natural gas futures dropped 47 percent from the start of the year through the end of August as the worst economic slowdown since the Great Depression cut demand for the factory and power-plant fuel, sending stockpiles toward a record high. Prices have advanced 0.6 percent so far this month and 21 percent since touching a seven-year low of $2.409 on Sept. 4.

Gas futures for October delivery plunged the most since May, losing 29.6 cents, or 9.1 percent, to $2.96 per million British thermal units at the 2:55 p.m. settlement of floor trading on the New York Mercantile Exchange.

In a short sale, investors sell borrowed securities and agree to buy and return them to the shareholder later, profiting from any drop in the stock.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: September 11, 2009 16:54 EDT